Rail Traffic Burnishing Buffett’s Early Call on Recovery

Was Warren Buffett on the right track with his major railroad buy in 2009? Increasingly, it appears so, despite the slow, uneven recovery so far.

Buffett spent $34 billion to buy Burlington Northern Santa Fe Corp. in November of that year. The country’s No. 2 railway, it moves a lot of agricultural products and coal for power. It was, in short, a big bet on an imminent U.S. recovery.

According to the Association of American Railroads (AAR), U.S. rail carloads originated in March 2012 totaled 1,123,298, down 69,190 carloads or 5.8 percent, compared with March 2011.

Intermodal volume in March 2012 was 928,350 containers and trailers, up 31,348 units or 3.5 percent compared with March 2011.

Twelve of the 20 commodity groups tracked by AAR showed gains in March 2012 compared with the same month last year, including petroleum and petroleum products, up 9,052 carloads or 34.2 percent; motor vehicles and parts, up 9,032 carloads or 15.3 percent; steel and other primary metal products, up 3,459 carloads or 8.3 percent; crushed stone, gravel, and sand, up 3,211 carloads or 4.8 percent; and metallic ores, up 1,642 carloads or 8.1 percent.

Despite wavering stock prices and uncertainty about the Fed’s decisions ahead, Buffett’s bet could continue to play out, if rail traffic is any indicator, writes Todd Sullivan, general partner in Rand Strategic Partners in Massachusetts.

In a blog post at StockTwits, Sullivan points out that rail traffic has held up better than he had expected, largely on construction materials and autos.“As I read the data coming out and observe the key indicators we follow I am becoming more convinced, those who ‘sell in April/May and go away’ are going to regret that decision,” Sullivan contends.

Buffett also is gaining ground on a decision by the White House to reject a pipeline project that would have brought oil from Canada’s oil sands regions.

Railroads can move the oil if the pipeline is not built, according to a State Department review obtained by Bloomberg News. “Whatever people bring to us, we’re ready to haul,” a Buffett spokeswoman told Bloomberg. If Keystone XL “doesn’t happen, we’re here to haul.”

News of a recovery is premature, warns Nouriel Roubini, head of Roubini Global Economics.

“The recovery is anemic, subpar, below trend, below potential,” Roubini tells The New York Times. “Final sales are barely growing. So I don’t see a sustainable recovery coming from that.”